Earnings Call: H1 2019

Aug 20, 2019

Good morning, everybody. I'm delighted to be standing here again, presenting another set of excellent financial results, which is a reflection of the group's position in the current market. So what does the agenda look like for today? I'm going to pick up on the highlights and strategy, And then I've invited Martin Clarke today, which is a little bit changed from tradition, who is our Divisional Director for the Southeast. As I thought, we may find it useful to hear from a senior director within our company to talk about our customer care improvement plan on the ground. Then I intend to pick up on some operational review matters before passing to Mike on the financial review. And I will look at current trading and provide the summary. Persimmon now Has a clear purpose: to provide long term sustainable returns. At the core of this is a desire to build good quality homes at a range of price points across the whole of the U. K, meeting the country's housing need. We believe This will not only create and protect superior long term returns for our shareholders but also for our customers, Our workforce and the wider stakeholders. The purpose manifests itself in the following key strategic areas: Firstly, my number one priority, which is to improve The quality of customer service. But we also are committed to meeting all the housing needs across the country. These items, along with the following points, All contribute to ensuring we maintain our industry leading financial performance. So let's have a look at that performance. And what I'd like to draw your attention to on this slide It's the change in volume, which shows a 6% drop. You may think that it's strange that I draw your attention to that Because in many people's opinion, that will be seen as a negative. However, that is not the case. This is a conscious business decision we have taken to put customers before volume As I believe that is the right thing for the long term future success of the business. But despite our drop in volume, Trade and performance remained strong. Newhouse and operating margin of 31%. Profit before tax of nearly £510,000,000 and return on average capital employed of 40.5%, including for land creditors. But most importantly, Our shelves are now being restocked, which enables all our processes to be enhanced and followed even further. £142,000,000 additional WIP investment in the ground, 19% more equivalent units. I am delighted, once again, our industry leading financial performance has been maintained. Now I would like to look at my number one priority, which is the delivery of our Customer Care Improvement Plan. I am encouraged by the improvement we continue to see in this area, particularly in our customer satisfaction rating over the last 6 months. However, in my opinion, customer satisfaction is not just about quality at handover or even about star rating. And it's not just about increased financial investment or robust quality insurance process. It is also about improving consumer rights, improved customer communication, improved posthandover service, Access to modern technology. And finally, ensuring people's homes are built safely, which I will touch on later in the presentation. Now I'd like to pass over to Martin, who's going to update you on our Customer Care Improvement Plan. Thanks. Good morning, ladies and gentlemen. Persimmon are making a significant investment in customer care. Financially, We've made a 40% increase in our customer service expenditure this period compared to last period. And more importantly, committed £15,000,000 worth of additional resource to cover customer care activities on an ongoing basis. We have, as Dave touched on, made substantial investment in work in progress, £142,000,000 That will Enable us to follow our processes more consistently. Our customers will be able to buy properties in a more advanced Stage. And we will be able to offer more accurate completion dates. If we refer to the chart below, You can see that comparing H2 2019 to H2 18, the number of staff we have in our customer care departments Has increased by 44%. Persimmon have a robust quality assurance process. We have a 7 stage pre completion inspection process, Which I'll refer to on the next slide. With our increased investment in work in process sorry, work in progress, We will be able to follow our processes consistently. Our 7 stage pre completion process, a robust process. If you look at the people involved in our process, this is to the time The people actually move in. We have our site managers do the check on the quality. Our contracts managers, The line managers and the site managers check the property. The blue and green card that we refer to is our sales check. We have a director of the region check the property, and then we have an independent quality checker also review the property. This all takes place before a homeowner receives the keys. What I'm really pleased about is our desire to empower our customers. The retention scheme was announced Earlier in the year, and I'm pleased to say that from the 1st July, all reservations that were taken, people had the opportunity To take the retention. However, what we can say is the retention We'll now or the retention cover will be increased to include all faults not only recorded at key release but also within the 1st week of occupation. That removes any criticism for rushed handovers. We will capture all defects, and we will deal with them. We are taking the lead in consumer rights. This is a U. K. Housebuilding industry first. We do have a recognize that we constantly need to improve the customer communication. We have 11 key stages We have an improved company complaints procedure. Our complaints are logged, monitored, checked. There's a clear escalation process. We are changing to exceed our customer expectations. So what happens when a customer moves in? How do we maintain high levels of customer Care post handover. We've already touched on the retention. That will give our customers the confidence that we will deal with the defects. We have a 7 stage post completion procedure, Which I'll review briefly on the next slide. And we've also changed our maintenance operative working hours to enable us to react to the needs of our customers. We have an earlier start, a later finish and weekend work in. So the 7 stage post completion inspection. You can clearly see this is a robust Process, it involves our site managers, our customer care managers, our directors, and it covers the period up to 2 months after At completion, we should capture all defects, and they will be dealt with. We are a leader in access to modern technology. Fibronest is now fully established. Besimina, the only house builder able to deliver their own full fiber Network to new developments. By the end of the year, we should have circa 5,000 homes connected. Later during this year, we'll have a new customer portal that will enable Better digital integration with our customers. We'll be able to do with customer care pre- and post completion communication. So in summary, with the improved disciplines and enhanced robust Processes and our significant increase in capital investment in all areas of work in progress, people and technology, This is already resulting in improved customer care satisfaction levels, and I'm convinced this will continue to improve. Thanks, Martin. It It is very important to me that our customers feel safe in their homes. So we've reviewed our pre start process I looked at all stages of the build from start to finish of the home buying process. We've looked at the principles of the Hackett Review and look to incorporate the principles of the golden thread, which is set out within it. We believe the principal risk To the implementation of the Golden Thread is to ensure its effectiveness and pleasing on the ground. So how do we intend to ensure that the golden thread is followed? We intend to invest in 31 independent safety and quality service inspectors. This is over and above The existing facility provided by a warranty provider. This is us taking an industry lead to ensure The things that we consider to be a principal risk, whether it be safety, whether it be a quality issue, that we can ensure that someone independent, Just like health and safety, it's providing an extra layer of check the check to ensure it's complied with. This investment is intended to eliminate situations like the cavity barriers in the future. So now I want to talk about how we are meeting the company's housing need. The group's regional structure has been further strengthened in the year with the introduction of our South Yorkshire business. And this has supported our excellent national coverage across the U. K. Here of houses at the right pace point and the right place with the right product. In particular, I'd like to draw your attention to 35% of our Private sales are priced below £200,000 That is an area we specifically positioned the business. I'm also particularly proud that 52% of our new homes sold are to first time buyers. I'm also I'd like to draw your attention to the facts our average selling price It's 17% lower than the national average. That hasn't just happened by chance. That is due to our positioning. 11% of our private sales are priced less than £150,000 and our increase in output It's greater than any other house builder since 2012. Persimmon is playing its part and meeting all the country's housing need. Pricing has remained pretty firm throughout the year. But I'd like to draw your attention to the completion change In the Persimmon South region, we have 10% and the Charles Church at 36%. The reasons for that are 3 primarily. The first one is, as we said before, larger 4 bed houses are particularly sticky at the moment. And that is specifically in the Southeast division, although there were signs of that throughout the country. But I'd also like to draw your attention to the 10% in the Persimmon South because this is mainly due to our Strategy of restricted release and then parts of the South where we've had to let the build catch up with the demand for sales. And this is reflected in our average selling price. What you can see from this chart is in our core market areas, Where we have the right product at the right location at the right price, our selling prices assured reasonable growth: 4% in the North And 5% in the South. If you look at Charles Church at only 1%, which reflects the difficulties in that market area. In my opinion, the company has a duty of care to our workforce. I want Persimmon to offer opportunities for all. I want Persimmon to be a company to fill your potential. As you've seen before, in the last two years, we have promoted over 5.70 colleagues. And I'm delighted to show in the last in the first half of this year, we have promoted a further 200 colleagues. We have a trained and talented workforce. And I would like to draw your attention because it really does make a difference to these young people's lives. We've taken another 150 apprentice traditional apprentices on due to start in September. These young people will have the chance to develop a trade. I also want everyone to share in the success of the company. That's why we're the 1st house builder to adopt the Living Wage Foundation payment criteria in January 2019. We are also very aware of our duty of care To the communities which we operate and our wider stakeholders, we support over 50,000 jobs. We have contributed over £255,000,000 to affordable housing and planning contributions. Our Building Futures campaign is now firmly established with over 3,500 applications. And I know my team Take great pleasure in the fact we supported 150 schools with their sports days, with some participation from Team GB athletes. At the heart of Persimmon's success is how we manage our landholders. We have a 6 year forward land supply. And I can confirm to dear That the land market continues to provide opportunities in line with our land holdings' current margins. Let no one be any doubt the quality of our landholders will secure the future financial performance of the business. And I can assure you that our landholding is in very safe hands. We continue to have strategic land success, nearly 2,000 plots successfully converted in the period. And I'd also like to draw your attention to almost 16,000 acres we currently have at the 30th June 2019. But more importantly, within that strategic land acreage, we have nearly 18,000 plots allocated, which aren't yet on our land bank. Strategic land investment remains a fundamental element of the group's Business model. Finally, I would like to touch on our off-site manufacturing. We continue to help to focus on self help through innovation. We have a Brickworks factory producing nearly 25,000,000 bricks, a tail of works factory which will be introduced in quarter 4 this year. We have Space 4 providing timber frame horns. All these three elements are further examples of how we differentiate from our peers. Now I'd like to pass over to Mike. Thanks, Doug. Right. What we're going to do now is we're going to look at In a bit more detail, the first half trading performance. We'll look at some of the major features of the balance sheet, And we'll look at the cash gen and returns in a bit more detail. So first half trading. We're quite pleased with the strength of the trading through the first half. Dave has already touched on the focus on customer care and the Holding back the sales release to later stages, so we can offer more accurate moving in dates, etcetera. Obviously, that has impacted volume in the first half by design. But to deliver £509,000,000 pretax profit, a tad down on the comparative period, It's a very strong performance with the return on equity at 31% in the As at June, that's a rolling 12 month statistic, as you can see on the footnote there. So it's still a very strong Financial performance supported by that 31% underlying operating margin. So the mix on the sales have changed a bit. 21% of the sales mix Being delivered to our housing association partners within the Partnership business. We've already touched on private and the volume coming back a tad. But you can see there, the average selling price has remained pretty firm. As Dave provided a bit of color around that, we've seen quite firm pricing conditions. And behind that, in the private market, around about 1.5% underlying inflation, probably around that mark, which has obviously supported the margin performance. So New housing revenue around about 6% behind the comparative period. But the quality of that revenue in terms of the margin delivery remains very strong. You can see the bridge there, The volume driver coming through, but counteracting that, the margins remain Very good. So the margin improvement is encouraging. And if we look in Into that in a bit more detail. We can see that a primary support is the land cost recoveries. We have Incurred more cost on the customer care side, as Martin has already touched on. That 40% increase period on period is around about £4,000,000 quantum in the first half of the year, Further investment in supporting customer quality and service, and that commitment, As we've touched on already, it's going to continue. And we've provided a £15,000,000 sort of annualized figure As an indication of what we think that will cost on a full year, fully invested Position. So the margin performance, as you can see there, 33.8% gross, 31% operating margin, still very strong. The land recoveries being A key support to that. And looking at the land bank, you can see there At the top of the bank, if you will, in terms of the own plot, the 13 point 1% cost of revenue percentage is still very strong. So we're managing to maintain the quality of that land bank. And we've done the usual sort of simple pooling Of the profits embedded within the land bank there. And if you do the simple weighted calculation, That gives you a figure of around about 34%, which is very similar to where we were at December. So the land bank continues to provide a very strong platform For the business moving forward, total investment of just over £2,000,000,000 the selective land replacement, Maintaining that quality, but has also led to a reduction in the land creditor. And the amortization, just to give you a bit of an insight into the land creditor, over the next 6 months, we've got about 140 to be paid down On that 484 number and the 6 months to 30th June next year, It's about £120,000,000 So we've got decent amortizing tail On that land creditor number. So the continued work in progress investment is there Support the customer experience. It's pleasing to see that we've managed to Through a combination of continuing to push on with our construction programs and later release, deliver a more solid Platform in terms of availability for customers on all our sites. That has Resulted in about €830,000,000 of cash being held at June. That's after the first capital return payment of the year That we paid at the end of March around about £400,000,000 and a very strong Turn on the capital employed in the business at around about 40%. That calculation has got the land creditor in it, which is very similar to the comparative stat that we saw last year. So the work in progress investment supports the quality and service that we are providing. You can see there that we maintain good liquidity. The net free cash generated by the business, £180,000,000 And that obviously is after the investment in the work in progress. And We can see there a bit more clearly that the cash from operations is still very strong around about the 500,000,000 pound mark. And again, the investment there in the working capital is clear to see. The bulk of that going into work in progress, again, emphasizing our Focus on supporting customer moving forward. So we've maintained strong liquidity. That's obviously important as we move through the cycle. And I think this is the facts looking backwards, the shape of that, you can see The shape of the cycle. So earnings come and go, but cash generation is a permanent fixture of how we run the business. That is a result of the combination of how we manage the balance sheet and obviously the cash generated through trading. So selective land replacement will support The strong liquidity as we move forward. The strong work in progress investment is there. Yes, it provides a bit of cover to Perhaps the Brexit risks that we're facing into, it supports customer experience. And also, It will unwind quite quickly. Obviously, if the cycle does end tomorrow, we've got good support to the sales that would take Moving into that sort of period and the work in progress would unwind quite quickly, thereby generating further Cash inflows. But also just to remind everybody, we will continue to minimize financial risk through the cycle. So we're not looking to Insert any structural gearing in the balance sheet. We've talked about a cash hold of perhaps 700,000,000 £750,000,000 For the scale of business, we currently are splitting that down. That would represent probably around 400 to cater for the Annual working capital cycle amplitude together with 3, 350,000,000 of a bit of a war chest for investing in new land. So that remains our position in terms of cash hold. But the business scale can change, obviously, as the cycle unwinds. If we have a smaller business, As the cycle unwinds, if we have a smaller business at some point in the future, then it's all about managing that process And generating the cash release out of the balance sheet through that cyclical change. And obviously, that's a key consideration in terms of when we're sort of reflecting on capital returns, future capital returns from the business, Which I'm sure you all will be reflecting on. The liquidity of business, as we've seen, is a permanent feature depending on how we manage the balance sheet as As far as the trading, the capital return is split into 2. We've got a bottom slice regular return of £1.10 a share. We think that's A permanent long term commitment, and anything over and above that represents the surplus Capital that we would be returning currently, 125 peer share. We set out a 3 year view last year To deliver the 110 and the 125, we've met 2 years of that 3 year commitment, 1 year to go With that final 125 scheduled to be paid in March next year. So we're in a very strong position in our markets. Dave's already touched on the spread and depth of the land bank in support of our positioning across the country. And we've got strong liquidity, but we're watching and judging the cycle Carefully being mindful of the risks that we face. That's the current Capital return plan, no change there. You've all seen that before. And as I say, we've got the final 125 scheduled for next year, but we'll continue to review The surplus availability to return to shareholders, and we'll be communicating that In line with our current plan when we release the final results in February next year. So at that point, I'll hand back to Dave just to finish off and summarize. Thanks, Mike. The attached table Shows a strong forward sales position. It shows it to be only 3% down, which I'm delighted with when you consider decisions we've taken to put customers before volume. I would also like to draw your attention to the 1% increase in ASP. This should help offset any build cost movements in half 2. The strong forward sales is a reflection of the encouraging summer weeks trading we've seen in the last 7 weeks. This gives me confidence for the second half when combined with. For the first time in a long time, early indications that labor and material availability is improving. Also, the selling prices remain firm. We have a strong forward sales position of over €2,000,000,000 19% increase in equivalent units. And finally, we have quality sites throughout the country with the right product At the right price. We have positioned the business in the correct place in the current market We are experiencing. Persimmonies, A change in business. The company is very aware of its obligations to its wider stakeholders. In particular, customer satisfaction is my number one priority. However, We should not forget the solid foundations Persimmon is built upon. We have industry leading margins. We have industry leading landholders. We have industry leading profits and returns. We have industry leading liquidity. And most importantly to me personally, we have a highly motivated in talented workforce. Thank you. So thanks for that. I'll go and take my seat, Then we'll go through another normal questions and answers. The hands went up pretty quickly there. So Will Jones from Redburn. 3, if I could, please. First, just picking up on build costs. Can you remind us what improvements you've made from a specification perspective This year and what, if any, you intend to do as a kind of addition maybe next year? And against that, to what extent the internal efficiencies we've seen from Internal supplies or external savings might still be available next year to offset any added spec. I guess what I'm trying to get to is when we look at the 34% gross margin in the land bank, to what extent do you think that's fully loaded for the changes that are coming down the track? Second one is just around customer satisfaction. Can you remind us what line of sight you've currently got on your kind of monthly? Is it are you like 2 months delayed so you can see Effectively through to June completions maybe at this point. And I think, Dave, in July, you talked about a considerable improvement of late. I suspect the answer is no, but would you be willing to give us any quantification of how the 79% might be might have moved or is trending kind of more recently. And the last one is just thinking about, I guess, the future size of the business more medium term, but to what extent do you think the change you've made in the business influence how big you think Persimmon can be from a capacity perspective over that medium term? I think if you take the build cost one. Yes, we can do that. But generally, the specification, we've done the review. We've looked at what we need to do and we see no further investment needed in that area. But I'll let Mike pick up on that in a bit more detail. Customer satisfaction. It normally runs 8 weeks from behind the legal completion. What we do know is The current HBF reporting period finishes in October. The end results do not get published until March, And we also know that our results for last year were 79%. And we also know That we were informed you that we were making improvements in our last update in July, and I can confirm that improvements have continued to see across the board. What I'm not prepared to do is go on record yet to see what they are. But what I can say is, I'm pleased with the results of what we're seeing. The business is completely behind the improvements that we're trying to make, and I'm confident we will get there. I don't know if you want to add anything to that, Martin. No, no. I think the measures we've taken are definitely being incorporated across all regions. The future size point, this is a decision we've taken to put customers before volume. I think it's a 6 to 12 month hiccup. I believe it's the right thing to do for to create long term shareholder value. And I believe it's the right thing to do to make the capital investment in the business to give us the opportunity to ensure our processes are followed. What I would like to hope when our shelves are fully restocked, we can release our outlets in a sensible program. And if the market's still there, the volumes will start to move back upwards. Mike? Yes. I think on The margin question. I think it's sensible to think that there's a bit of a margin fade probably as we move forward. The Supply chain is still inflationary. We are seeing some interesting changes over more recent weeks, particularly on Groundworks packages and costs at the front end of the development process, if you will, on Off-site works, external works. But we obviously, you can't second guess whether that might tighten up again or whatever, but That's slightly encouraging. No one knows what Brexit will bring in terms of tariffs and sterling weakness, etcetera. That could impact on costs a little bit, albeit the bulk of what we use is onshore, Probably a tad over 80% or so. So but I think the supply chain is inflationary. The overall industry is trying to expand output in line with the government's policy objectives. So as new entrants come in and perhaps we see at the back of the book, You've got the picture on starts, which seems to have just nudged down a little bit more recently. But if the industry continues to move output forward successfully, then obviously, the supply chain has got to try and keep up with that. But I think, as Dave has already mentioned, the investments we've made in brick and tile and Space 4 Does help us mitigate some of that cost pressure, as does the core house types that we're increasingly Getting more coverage from. And as you know, you've got to work hard on many fronts to mitigate these issues. The group procurement activities, we continue to make strides on that side as well. So But I think at the end of the day, I think it's sensible to take a view on a bit of a margin fade as we move forward over the next year or 2 Because I think the land cost recovery is, depending on the sales mix, as always, is pretty Good, if you will. It's in line with where the land bank sits. So moving forward, you wouldn't expect A lot of more significant support sort of period on period to come out of land bank because it's already delivering good support. Andy? Andy Murphy from Whiteman Howard. Two quick questions, if I may. First of all, in terms of the €15,000,000 investment, it probably works out about £1,000 a house. I was wondering around that, if you're delaying the release of certain houses, Does that in itself bring extra cost in because you were telling the construction team to take a bit longer and take a bit more care? Therefore, Is there more labor costs in terms of that extra duration? And secondly, around the living wage that you're introducing, just wondering to what extent And how many employees that covers? And what would be the annualized financial increase in that cost? I'll deal with the first one. If you want to deal with the second one, please, Mike? Yes. Yes. I mean, living wage is all about really the way that you approach paying The employees within the business, it's about the balance between sort of the regular payment The basic salary and then your variable pay elements. So in actual quantum terms, the vast majority of employees in the business were already paid Beyond the living wage minimum by some margin. But it was how it was divided, whereas a living wage is really all about delivering A stable, reliable weekly monthly income level that people can rely on. So what we've done is we've done quite a lot of work inside the business, readjusting how people are rewarded, the balance between Base salary and variable pay elements, commissions, bonuses, etcetera. And if you think about how sales staff are at the front end, Rewarded to a certain extent. So we've done quite a lot of detailed work readjusting that. We've Obviously, consulted with staff, etcetera, gone through that those processes, which takes some time. But it's good to arrive at a point where The employees all have a regular weekly monthly income as a base salary, if you will, Which is beyond the living wage parameters with variable pay on top of that. So It wasn't particularly much of an on cost for us, as I said earlier. It was really the shape of how that was delivered. As I've said previously, one of our big problems has been completion on time, specifically because of our first time buyer profile. People's need and desire to get into the house is a lot different when you're a first time buyer. For example, if you're in rented accommodation Compared to when you're in any existing house in a month's delay, it doesn't materially make any difference if you have to stay in your house for a period of time. What the additional investment does, it gives us more time and give better accurate dates. It's not an additional cost as such, the time it takes. In fact, in my opinion, I think in the medium term, it gives us more opportunity to get the house right first time. And I think that in itself will actually save money As we progress through, specifically on the back of the retention we're introducing, which I believe will change behavior within the company, because it's going to be a lot more emphasis And energy around anything that's picked up until the retention process. So no, I don't think it's actually going to cost more money For the have that additional time period, but I think in the short term and medium term, I could actually see more money. Thank you. Furnas John from Jefferies. 3, if I may. The first one actually to Martin. Thank you very much for the presentation on the customer care. Can you remind us what has changed from a year ago? Because you obviously said that these pre checks, These post completion checks, where was what was what's new within that? Was it a 5 step process before? Was it a 3 step process? Just so we can understand the changes that have been made. 2nd of all, in terms of the land bank, if you strip out the change in your land creditors, It appears you spent only about £175,000,000 on land in the first half. Is that reflective of uncertainties that are out there? Is it reflective of Opportunities, is it just pure lumpiness within there? And then lastly, just in terms of, again, Customer Care, but this is slightly more direct towards Mike. Given all the changes you put in place and the 40% increase in costs, where do you think your customer care spend And service sits relative to your peers, those who do have an HBF rating, which sits in the 4 or the 5 star. Where do you think you compare now In terms of the efforts that have gone in, even if you can't tell us where the ranking may be necessarily. Okay. Do you want to talk about that? Yes, I'll do that last one first. Yes, I mean, I think you've got to be careful of comparing the spend, I think, Because you can be spending it for different reasons, if you know what I mean. And I think that what as Dave just said, what we're trying to do Is prevent issues arising, and that is going back to Dave's On the principles within the Hackett review, which really isn't about 2, 2.5 storey dwellings. It's Obviously, emanating from the review of associated with high rise construction. But the principles remain the same in that if we Pursue those in the right way, then it should eliminate issues arising. And I think that Therefore, the spend on post handover issues in terms of customer care, etcetera, Should diminish. And I think that Dave is absolutely right in the visibility that the retention will bring within Our business, the strengthening on the processes that Martin's already touched on, We're all working towards more attention and diligence around The process is pre handover. So the post handover in terms of customer care spend as defined Actually diminish. So I think that pointing to spend being large Isn't necessarily a good thing, even if it comes with a 4 star rating or whatever. Yes, if something's wrong, it matters how you deal with customers to put things right. And that is caught by the recommend rating. But you could throw a huge amount of money at it post Andover And achieve a higher rating. What we're trying to do is prevent the issues arising in the first place because that Really accords to the principles within the Hackett review, and that's what we're trying to do. Rather than comparing ourselves To a post handover cost pile, we don't really think that's the right thing to be doing, Particularly thinking about the future and positioning the business with the right processes moving forward. So I think The principles in the Hackett review, we believe, will gradually be adopted throughout construction in the U. K. Anyway, out of necessity. And we want to position our business in that way now. And that's the process. I don't know if you want to add anything. No, I think I just would reiterate, it's not just about the £15,000,000 We've made major investments in 2 areas. We've made the decision to use Some of that surplus cash in our balance sheet and invest £142,000,000 of it into WIP to ensure The house is at the right stage to ensure that the process can be followed more diligently, to ensure that our 7 point check happens. If we follow that 7 point check, be no one any doubt we know it works. We have 5 star businesses in our companies, and those are the businesses that have got the stock on the ground. This isn't about throwing money at a thing and spending like a drunken sailor. This is about having the right whip on the ground, the right processes because we know it works in the industry when we can do it. And the third thing is to enable that to happen, I made the conscious decision to put Customers before volume. We sacrificed 500 completions to make this happen. That is not something to take lightly. That is a lot of money. Let no one be in any doubt. We believe in what we're doing here, and we believe it's going to work. In terms of land bank, I'm pleased you've asked that question because that land bank hasn't just happened by chance. That's 20 years of management for me and Mike to ensure we've got to that position. And as I've said often, I'm not going to give that position up lightly. If the land deals aren't there, I'll not buy them. And I've also said previously, I'm happy to see the land bank come back. However, in this instance, it's not particularly that we're not seeing the land opportunities because I do think we'll be buying more land in half 2 than half 1. But if at the minute the opportunities aren't there, We're not going to sacrifice what we've worked hard for over 20 years. Martin would like to touch on the customer care. What's changed? Well, I think that Mike and Dave, in part, have answered quite a bit of your question. But the 7 stage pre completion inspection process you referred to, We are carrying out more checks this year. Not all of those items last year were necessarily being carried out on 100% of the properties because that wasn't our process. This year, our process is To make sure we do carry out those checks on 100 percent of the properties. The directors are more involved this year with the quality of the homes than they have been in the past. Sorry, I'm going to be cheeky and do 2 follow ups while I have the microphone. But first, what about the post completion? Was that there last year? Is that new? Probably the retention. If you think about what we're doing with the retention, I I mean, this is a groundbreaking move, isn't it? Who else is offering a retention in the sector? And why are we doing it? There's an old party working group looking at a new home ombudsman. Unfortunately, that's about compensation, really. So the horse has bolted. What homebuyer really wants to enter into a process to get compensation for something that's wrong With the house that they've bought, a customer doesn't want to go in that direction. And I think it's incumbent on the industry to recognize that. That's not the solution to delivering high quality product, is it? You've got to address the issues before they arise, if you will, to make sure that they don't arise. And that's what this retention move It does. It brings a lot more visibility to ensuring that The behaviors in each of our 31 businesses become very, very focused on making sure the quality is right Because they're going to be managed in line with the retention that's held by customers in their business, And it's going to be very visible. And so they're going to be very focused on making sure it's minimized for all the right reasons. And that doesn't involve compensation. It doesn't involve throwing a lot of money at customers post completion to make them happy. It's about getting the product right so that they are genuinely pleased. And Sarah, my second follow-up. 1 of your peers talks about the cost of getting it right first time to be around 5 percentage points of margin. To be clear, when you're talking about customer care, you are only talking about the cost for the post completion. I think So we're talking 2 slightly different To be fair, I don't recognize that figure. I told them we'd need more information if you want to write this separately, showing the buildup of what the spend is and what the 5% is. I'll be very, very interested to see when I'm spending all the money. Have you got the analysis of that 5%? So it could be here sooner than But to be clear, when you're talking about customer service, you're talking post completion. Well, customer service starts the journey, it's the journey, isn't it? You rock up You've been on the website. You found the particular type of home in the location you want to live because it's just around the corner From your parents or whatever, because you've got a young family. It's all about the journey that you travel from really, visiting the website, isn't it? And the experience you have, that's why the customer portal is important. We can provide a more rounded experience to customers right from the off in providing better communication opportunity, etcetera. So it's not just post handover. It starts from first contact. And everybody in the business has to be tuned into that process. That's why communication is very important. But that's why it's your construction activities, how you deal with customers on a construction site. It's your health and safety around that. It's about their living environment. You've got some people already living In their new homes whilst others are being constructed. It's the whole thing. It's not just after handover. You've got to look at every part of your business in terms of delivering A more rounded, enjoyable experience. Guillermo? Thank you very much. Arnaud Lehmann, Bank of America. Two questions, please. I mean, firstly, I guess a follow-up, Mike, on what you just explained. Did you have to invest anything to Improve your brand or recover. There's been a lot of bad press. Obviously, this somewhat backward looking TV show a few weeks back. And that was back in June or July. Clearly, you're investing a lot for customer care once they are customer. What are you doing so that people think, okay, as a choice between in this area, Baratome, Bovis and Persimmon. Now Persimmon, I Remember, there was a bit of bad price. I'm not an expert. What are you doing to make sure that your brand is back on track, so to say? And just maybe one on Help to Buy. I believe there are some price caps introduced from 2021 by region. Could you please remind us How your selling price compare with these price caps? Would you expect could that limit house price inflation, in your view, if you want to remain within the bound Help to buy. Should I do that last one? Okay. Yes. 70% or almost Yes. I mean, when we compared our Average selling price of our offering across the regions. It was actually the only the Northeast that it seemed a bit Tight in terms of the price cap that they were suggesting for the Northeast. Everywhere else, we would we Seem to be there or thereabouts. So whether they may have to look at that, I'm not sure. But It seemed a little low in the Northeast, but everywhere else, we were quite content with how that was scaled. In terms of the brand, I think you're quite right. A lot of the issues which are being identified and which are being covered are what we would consider legacy issues. However, I want to treat them in that context. We are dealing with them. We've made massive progress in that process of dealing with any legacy issues. However, there's still a bit more work to be done on that. But what I can say, any customer who brings anything to us, we will resolve it And they will only provide a standard and even further if necessary. I think what you're really driving at is what makes the customer pick our houses, And there's various moving parts in that. And of course, customer perception of the brand is important in that. And what we have done, if you think about it, has been industry leading. We've given the first time anybody retention. That empowers customers and give them rates. They know a fair and well, If they are moving to our house and we haven't fixed their items, they can keep our money. To me, that gives them more confidence than any story. That really makes a difference to them. And what I wonder is, if all our peers are so brilliant about, the houses are so perfect when they move in, They'd have even less work to be worried about in reducing our retention. We believe this will become the industry norm, and we believe we've done the right thing by introducing it. And I think our customers will benefit from it. And also, it's one of the lovely scenarios where I think the company's behavior will be improved To drive to get their houses better first time. Thank you. Gregor? Gregor Kugich from UBS. I've got a few questions. So the first one is just To come back on the whip, so you've obviously invested. I think it's going to start at last year in the first half. Where are we on that journey in terms of The investment, how much more is the investment? Yes. I mean, we said in July that we'd like another circa 10% come December in terms of EU's Equivalent units on the ground. So I mean, another way of sort of benchmarking it, we look at A percentage of the previous 12 months turnover. And you can see in the pack, we're back up at 30% At June, so that might tickle forward a little bit. So maybe another I have £50,000,000 come December invested. We'll see. Thank you. The second question is on the ongoing independent review into sort of, I think, kind of root and branch Analysis, I mean, I appreciate it's independent, so maybe tough for you to comment. But what do you do if they come out and say, well, actually, On the specification side, you're not up to scratch. How would you respond to I think the independent review is something that we're looking at positively. It's a forward looking theme. It's well, its real purpose is to review in our systems and processes what we do at the moment and see if it's dealing with the problems we've had in the past. I actually welcome that, and I'd welcome the test to see what we're doing because we're pretty confident that we are dealing with the issues. But it's not for me to speculate what the review is going to actually say. We'll wait and see what happens, what the results are. And if that was one of the guidance and of the advice that came out of the independent review, of course, we'll look at it. And then finally, I think in the sort of outlook statement, you hint More on volume for the second half. I don't know what you're trying to say. You're trying to say that you'll have another year over year decline? Yes. I mean, I think Are you I think we're obviously now Annualizing. I think what we're saying is that our approach to making sure The build is more advanced at reservation after sales release. That is not going to change. Now we are and have made strides on moving our build forward. So with more plots, more available at more advanced stages, there's a bit more work to do on that as we've already touched on. But I think that for the second half of this year, I would have thought that given that approach is going to be consistent, we're going to be down on the second half of last year. I think the figure was something like 8, 8, 350 ish in the second half of last year. So we're going to be down on that. But for all the right reasons. And as Dave's already said, putting the customer first, if that leaves our volume down, then so Yes. We're very confident in terms of the quality of the returns that we'll be generating. Yes, a bit of margin drift to come through, but nothing substantial. So I think the out turn will still be pretty positive, probably a bit down on last year, but still a positive result. And as Dave said, if that puts a stronger platform into future delivery, well, that's a great investment. That's the way we look at it. Thank you. Aynsley Lammer from Canaccord. And just 3, please. 1st of all, on the kind of recent trading, I wonder if you could give a bit more color there. It sounded quite positive you expect the kind of usual seasonal bounce into the autumn Themba, so just what's driving that confidence will be interesting. Secondly, party exchange, just wondered what the percentage of private completions of in sold and part Change in the trend you see there going forward. And then just lastly, on the €50,000,000 of customer care extra cost, you provided anything for any retentions you might not get back within that number? Well, I'll deal with the third one. If you can keep on the first one, mate. Yes. Yes. I mean, the recent trends, it's interesting that sort of the bang up to date position, the summer Market is quite encouraging. Our weekly take is in terms of Private sales rate per site is more or less in line with what we did In the same period last year. So that's a little bit better than we've been tracking through the first half. So that is quite encouraging. And it probably plays to the strengths of the positioning of the business that Dave was Touching on earlier. So we'll just need to see how that continues to play out. Yes. I mean, I think that and pricing continues to be firm. We're not seeing any spike in cancellations. We're not seeing an increase in down valves. So the broader picture It's still pretty encouraging given the uncertainties that are out there. PX is an interesting one. We are carrying a bit more PX. And indeed, it's not at the levels that we have done historically. I think in the first half, we Supported about 10% PD sales with pad exchange overall, Whereas back in the day, we'd have been up at 30%. So there's certainly headroom for us to support customer a bit more On that side, given the secondhand market continues to be a bit slow, So we might see a bit more existing homeowner activity looking to use that PX And we're happy to do that as long as we can agree sensible pricing at the front end. So on the retention, it's been designed to give the consumer confidence. What we didn't want at a process where If the high is bad, I know something that was cost more than what the retention was, that they could we just give them retention, they would lose control. It's been designed to guarantee them that the work will get done. Under no circumstances will the work not get done. And in the event they're unhappy how we've done it, It's written into the retention policy that they call upon the warranty provider, who would then come and do the work to the satisfaction. Therefore, there isn't a risk exposure And non return of the retention, where the risk would be if it generated a lot more cost that we'd have to deal with. But I believe firmly, the fact that we are introducing this, The fact that our site managers and our staff now have more time to follow our procedures to follow them, that we will make sure the houses are right more Importantly, that's key release, which means we shouldn't pick up the items of key release, which I believe will save money in the long term. Ami? Ami Galla from Citi. Just two questions from me. The first one is on the strategic pipeline. 55% of the strategic component in H1 on was about 55% of the land replacement. Can you give us some color as to how is the pipeline moving forward from over the next 3 years? Should we expect that to continue stepping up? And Connected to that, as the strategic component increases, should we also expect that the WIP investment should also increase in line with that? My second question was on the gross margin moves in the first half on Persimmon and the Charles Church brands. They were moving in 2 different directions. Could you give us some color around that? Just on that Could you give us some color around that? Just on that last one. It's about the sales mix and the different sites. There's nothing systemic, if you will, driving that. I think it is just down to the mix, Ami. Strategic lines are obviously very difficult to forecast us when it's going to hit. The plan and process isn't a 1, 2, 3, 4, 5 process. It's got different moving parts that come into it. So it's very difficult to see what the timing is going to be and when it's going to be implemented. But what I can tell you, which is really encouraging, In NIM Acres, as we've gotten our strategic land bank, we have 18,000 plots of allocated land and plans. That's almost the same as a planning permission. We only move stuff onto land bank when we secure planning permission. And a lot of that, a good percentage of it is actually freehold, not just Optionland. And then as for the WIP investment, it depends upon the nature of the sites because you're quite right. The biggest strategic sites require a large more WIP investment, but I think the natural shape and movement will sort of balance that off. I think the biggest moving part in our WIP investment is the decision that we've taken to invest more money upfront to get more WIP in the ground Rather than a big movement, further movement in externals. And also, there's a fundamental principle that If there's a lot more external abnormals associated with the development, your land value is going to be lower anyway. So Chris? Chris Millington at Numis. First one, I wanted to ask is on fire safety. Kind of where are you on that review? Is there any costs associated to it? Could you just give us an overview first and foremost? Next one is just outlet closures in H2. I know it's difficult to predict sales rates, but kind of best guess there. And then the final one, something Dave has commented on in the past, and it was a feature of Capital Markets Day, and that's senior management retention post the payout of the LTIP. Perhaps, again, just an update there. Okay. Senior management retention, I don't think we're seeing much material change. I think the biggest moving part was obviously Jeff leaving. I'm not sure how you describe that one. But what it has given us is an opportunity to reorganize our senior management. We've now have 5 divisional regional chairmen, and Martin is one of them. And I'm delighted to give them opportunities to Give more people to fulfill our potential throughout the company. I don't think it's a material risk. The exodus, which has been described, hasn't happened. We've seen reasonable stability in terms of the senior managers. In terms of the cavity barriers, As you know, we made a provision for that last year. We expect to spend and remediating these, which isn't an expensive item, to be within that Provision we made last year. We've now inspected over 10,000 properties throughout the country, and we continue to follow the data. What I can tell you is we are adopting a 0 tolerance approach to this because we believe this is an industry issue, But we're not leaving any margin of error on this. If we find a tiny gap, we are replacing the cavity barriers. And we'll continue to do that. We'll continue to follow the data. And is there many more homes you'd like to inspect from here or? That's the problem. We don't know the exact figure because it will depend on what the data and the failure is, and it's different for different sites. Some sites We have no problem at all. And other sites will have a reasonable failure rate. But what I can assure you is, 1, we believe we have made a big enough provision to deal with it. 2, we're given commitment and energy to deal with it, with over nearly 10,000 properties being inspected. And thirdly, we will make sure that all houses are inspected where we believe There's an issue. In terms of aren't there closures, mate? Yes. I mean, it's again, it's hard to determine, Chris. I mean, it depends on your sales rights, isn't So how long is a piece of string? But I think we've got good visibility of new sites coming through. So I think we've said maybe at the end of 90 sites to open in the second half. And I think we're off currently about 345 release sites with around about thick end of 20 held back, Beavering away on the construction side. And I think the shape of that probably is going to be similar through the second half probably. I. E, a continuation of the 345. Yes, yes. And obviously, as construction advances on The sites that we're holding back from First Relief, as they come through and hit the right stage, is it 40%, 55% build complete, Then they will come into the release sites. But as new sites coming through, they'll be replaced probably with 1 or 2 that will continue to advance build without I think the moving part in that is as we get enough whip in the ground and we become the shelves become fully stocked, that we'll see a lot of the sites where we're holding back release Because it's not just you may have a site where you're holding a certain product back, where you have 4 beds available while we're taking a view not to release the 2 beds too far down the road. So I don't think that will unfold until another possibly the end of the year, but maybe even at the start of halfonetwenty. Chris? Chris Fremantle from Morgan Stanley. I know you've talked a lot about the near term measures you're taking On margins and WIP, etcetera, just wanted to redirect the discussion slightly towards the medium term. You talked about saying it's It's sensible to assume a margin fade given the cost inflation outlook. Just wanted to talk a little bit about Help to Buy, obviously, you still got 60% of your volumes roughly using Help to Buy. And now that, that First change in Help to Buy is starting to come into view in the forecast horizon. What What do you think it's sensible to assume for the impact of that change on your top line? Revenues, some acquisitions. I'll give you the second one first. Yes. It's interesting how to buy because we've positioned ourselves at that entry level point on purpose. So 52% of our customers won't be affected by the introduction in 2021. Because they're first time buyers. Which is obviously different to what our peers is. That's something we're very aware of and what's happened hasn't happened by chance. The The second thing I'll point out will help the buyer, the mortgage market is becoming much more sophisticated again. And all right, the interest rates, what you can get available For the larger houses, if you've got some equity, there's very little difference now between how to buy mortgage and what you can get if you've got some equity. So the financial compelling bit It's the difference that you don't pay an equity rather than the interest rates. And the best advice or the best Picture we have of what happens in the poorest Help to Buy world, I think, since Scotland. Because I don't know if you know, but Scotland has a price threshold On their Help to Buy of £200,000 And I don't know if many is near Edinburgh and Art East Scotland offers. In our eScotland office, I can assure you there's not many houses we sell for £200,000 So what's been the impact of effectively a faded reduction I've helped to buy in East Scotland office. And the truth is nothing. The markets remain incredibly resilient. We've not seen sales rates drop. We've not seen revenues drop, and we've not seen the land market disappear from our peers. So I'm pretty encouraged that The mortgage market would step into the gap and help supplement that. And I'm also confident because of where we've positioned ourselves that the impact will not be too big on the business. I think it depends on what the future holds in terms of the wholesale cost of funding, All these big global issues, it's hard to see through that Because interest rates are low, aren't they? And look like they're going to remain low for some time to come, which is a big It's sort of plus for the consumer and enables the mortgage lenders to provide pretty compelling Product to support customer choice. And as Dave said, the mortgage market has matured, hasn't it, over recent years. Higher LTV products being introduced and at good pricing. But as we've seen in the past, that could change. So it depends on if things are going to change, how do they change? But If you take the view while interest rates are going to remain for some time, then that's quite a supportive backdrop. And I think in terms of medium term margin, so I think we'll probably have to finish soon. As I keep saying, we may see a bit drift back in margin, but what I'm it gives me confidence is our land bank. It's taken us 20 years to get a land bank to where it is. We're not going to let that drift back. And we know As long as we manage that land bank, we're sensible how we add to it, we're sensible how we bring the strategic land bank, That we know our margins will be there and thereabouts. Yes, they could drift back, but you're not going to see massive movements in margins suddenly dropping 5, 6 percentage points because we know the margins in the Forward Land Bank. I suppose the exception to that is a cyclical Jolting end to the present cycle, isn't it? If pricing gets Squeeze for whatever reason that it'd be a different set of circumstances. Yes. Thanks. Thanks, Chris. David O'Brien from Goodbody. Sorry to bring you back to The customer care measures again. But I guess the customer feedback seems to be pretty upbeat. Just wondering what kind of interactions have you had with the government On these measures and what feedback, if any, had I given you? Secondly, in the outlook statement, you alluded to a reduction in your returns on capital employed. Just kind of think in our heads what's a reasonable level for us to keep in mind going forward. I think the first one is that we've reported the capital employed differently. Mick, if you want to provide Yes. I mean the capital employed, I think the fact that we are going to be carrying more work in progress moving forward Leads to a view that the returns are going to be diluted to a certain extent. But the other driver is your op margin. Your basic calc is it's your operating profit over the capital employed in your business, isn't it? So The sort of scale of business we are, the sort of margins we're delivering, then your numerator It's going to be quite strong still. Your denominators expanded a bit because we're putting the customer first, if you will, More so in terms of the WIP investment. But again, as Dave's already said, the land investment side It's one that's got to be judged carefully, and that could come back a little bit. We are 6 years, And there's capacity for us to have that coming back a little bit as we move through Depending on the risk profile. So yes, I mean, I think the return outlook still is very positive, Albeit, it's going to come back a little bit. As for the customer care, as you can imagine, we have regular engagement with the government. We keep them abreast and what the improvements are in our customer care unit. We also have regular invites where we invite MPs and ministers to our sites. And that's an area where I think the relationship's improved in the last few months. They don't see whether past come whether happy with our results, if that's what you're driving at. But what I can assure you is that the results are material, and we are happy with what we're seeing. If I could follow-up, have they influenced any of the measures you've taken? Sorry? Have they directly influenced any of the measures that you think? No, it's not on that. The conversations aren't that time. Gavin Jager from PLN. Just a couple. Just coming back on the 7th stage pre inspection. The way that was set up, do you see that as Kind of an industry norm now. What do you think is more rigorous than what your peers in the industry are doing? And then kind of linked to that, the retention policy, Is there any remuneration kind of linked to that positively or negatively? And if so, how kind of deep into the organization would it go? To be honest, I'll deal with the first one first, and it is a good point. No, there isn't. But I think it's something worth looking at. Our energy at the moment has been about driving its delivery. And I can assure you it's been quite difficult to reduce, and it's took a lot of drive and commitment by my team, who I'm immensely proud of, I've made this happen in the industry when there's a lot of barriers put into place. But I think it raises a fair point. I'm sure something the Board would look at, whether we should be linking that somehow, because I think that's I take that as positive feedback. Do you want to pick up on the 7 point section, Martin? The question being, is that industry norm? I don't think so to the level that we actually carry out these checks. The time that we've got the 21 day period, My understanding is that's not industry norm. We can't think of any more checks that we could positively do than what we've added. So I know I think it is industry leading. John? Sorry, to Stick with it, John Messenger from Redburn. Just can I just understand it, as part of this process, when we think about a typical house builder yourselves, Doing 7,500 units, would it be right to think that historically you've probably completed 1,000 a month for the 1st 5 months and then done 2,500 in that final month? Just to understand it now and is that Yes, it was seasonality, John, yes. Yes, exactly. And that point around build programs and everything else. But As part and parcel of because I'm just thinking physically for the 31 guys, the directors, the 21 day sign off, doing all that in December or June. Last one. Number 1, is it mandatory? And number 2, is part of this going to be that, that profile of completions will become much more even in that Some of your peers have moved that way to try and move away from the June December because it just looks like it will be physically quite difficult For 31 guys to do the sign offs. But I think to be fair, I think you make a very valid point, and you've hit it on the Neil. That's exactly why we're putting more whip in the ground To try and even that profile to give us time to follow the process. But the 31 inspectors we are taking are different to the inspectors in the completion process. Right. These ones in these completion process, we have a number of them throughout the country. And what they are, they are people who look at it from the eye of the customer. So we have decent access to them. But what we know is and you're right, what we're trying to avoid is that rush at the end. And we know because we know if we get enough time and we follow our process, we'll have 5 star builders. And what we hope is to get them done. It'd be totally naive for me to say that suddenly we're going to get them all equally spread over the month. We know we're going to still have a bit of a squeeze at the end. And that's something the industry will always have. But what I can tell you is, just like in June this year, if we believe the quality of houses aren't right, It's handover. We'll not be checking the completions at the year end. Got you. And then just So the I mean, the other part of the question is getting the bringing the bill forward, isn't it? Absolutely. Yes. So you can do the checks. You can do inspections earlier. Yes, absolutely. And then it's ready to And that's a whip carry for a relatively short period of time. And then just on the financing because you mentioned earlier, €400,000,000 plus €350,000,000 of kind of war chest, Mike. That GBP400,000,000 would that have been GBP650,000,000 a couple of would that have a year and a half ago? Because I'm just thinking part of this is the whip has gone up. That becomes steady state, Effective rather than having the year end up and down. That GBP400,000,000 is that maybe actually a bit high on what you might need going forward because you are effectively you've switched Getting to WIP, just to understand that shape. Or is that being too obvious? Yes. I think that's a valid it's a valid observation. I think we need to review The sort of amplitude of that carrying out over the next sort of year, 18 months, If that gives cause for us to take a slightly different view on the sort of 400 number, We'll I guess we'll be talking about that in February. And just for the back on the retentions, have all lenders signed up? Or is this Is there an issue there in terms of just how many mortgage lenders are prepared? Well, the bulk are already there. There's 1 or 2 just sort of finally Looking at the detail. Is that more process for them? I was in just It is process, yes, in terms of how it works, understanding the finer detail. So there's certainly good support for it. Thank you.